MB102 : Managerial Economics.

Industry : Steel Industry

TISCO (TATA Iron and Steel Company)

By : Gyan Saurabh (11MBMA27) K. Rajesh Kumar (11MBMA64) Pratyusha N. (11MBMA04)

Introduction
Steel is crucial to the development of any modern economy and is considered to be the backbone of human civilisation. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flows and income generation. The current global steel industry is in its best position in comparing to last decades. The price has been rising continuously. The demand expectations for steel products are rapidly growing for coming years. The shares of steel industries are also in a high pace. The subprime crisis has lead to the recession in economy of different countries, which have lead to a negative effect on whole steel industry.

The stages in Global production of Steel.

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History.
Since its independence, India has experienced steady growth in the steel industry, thanks in part to the successive governments that have supported the industry and pushed for its robust development. Steel industry reforms particularly in 1991 and 1992 have led to strong and sustainable growth in Indias steel industry. Indias share in world production of crude steel increased from 1.5% in 1981 to around 12.3% in 2011. The private sector is considered engine of growth in the steel industry and technological changes and modernization are taking place in both the public and the private sector integrated steel plants in India. Major Players of Steel Industries in India base on Ownership:
PUBLIC SECTOR SAIL VISAKHAPATNAM STEEL PLANT FERRO SCRAP NIGAM LIMITED BIRD GROUP OF COMPANIES SPONGE IRON INDIA LIMITED MECON LIMITED BHARAT REFRACTORIES LIMITED

PRIVATE SECTOR TATA-CORUS ESSAR ISPAT JSW STEEL LIMITED MUKAND LIMITED

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Categories or types of Products.

Steel

Form/size/shape

Composition

End use

Liquid steel

Alloy steel

Non-alloy steel

Structural steel

Crude steel

Stainless steel

Low carbon or Mild steel Medium carbon steel High carbon steel

Construction steel Deep drawing steel

Ingots

Siliconelectrical steel High speed steel

Semis

Rail steel

Finished steel

Foreign quality steel

Flat products

Non-flat Products

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Market Share of Steel Companies in Indian Market

SAIL TISCO RNIL ESSAR, ISPAT, JSWL OTHERS

Companies

Market share in terms of % 32 % 11 % 8% 19 % 30 %

Production (in Mn Tonnes) 13.5 5.2 3.5 8.4 14.5

SAIL TISCO RNIL ESSAR, ISPAT, JSWL OTHERS

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Consumption in India.
Driven a booming economy and concomitant demand levels, consumption of steel has grown by 12.5 per cent during the last three years from 50.27 MT to 58.45 MT. The per capita steel consumption is only 35 kg in India compared to 150 kg in the world and 250 kg in China. Soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put India's steel industry on the world steel map. India is the fifth largest steel manufacturer of the world, after China, Europian Union, Japan and United States. China produces almost ten times to India.

Year wise Demand of Steel in India.

Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Demand (in Mn. Tonnes) Growth (in %) Price (in Rs/Ton) 34.444 24000 36.037 4.625 33500 40.471 12.32 30000 43.063 6.4 29080 45.387 5.4 27750 50.257 10.73 25040 58.450 16.3 25350

Demand Curve
40000 35000 30000 25000 20000 15000 10000 5000 0 34.4 36 40.5 43.1 Quantity 45.4 50.2 58.4

Price

Demand

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Consumers in Market
Support from dynamic economy Positive stimuli from construction industry Strong growth in mechanical engineering Booming automobile industry Over the past ten years Indias crude steel output rose nearly 7%per year to 54.35 million tons. Global crude steel output increased by 4% It equals Ukraine in the 4% global market share.

Year wise supply of Steel in India.

Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Supply (in Mn. Tonnes) 32.81 34.70 38.96 41.41 43.28 46.5 54.35 Growth (in %) 5.76 12.23 6.29 4.51 7.42 16.91 Price (in Rs/Ton) 24000 33500 30000 29080 27750 25040 25350

Supply Curve
40000 35000 30000 25000
Price

20000 15000 10000 5000 0 32.8 34.7 38.9 41.4

Quantity

Supply

43.3

46.5

54.3

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TISCO in the context of Indian Economy.

Introduction
In his lifetime J.N.Tata was captivated and led by the three guiding stars - building an iron and steel company, generating hydro-electric power and creating an institution that offer the best education in science. Jamsetji Tata had started his quest for steel way back in 1882 but it was twenty-five years later, in December 1907 that the explorers found their way to Sakchi - at the confluence of the rivers Subarnarekha and Kharkai. On 27th February 1908 when the first stake was driven into the soil of Sakchi the dream had come alive. When Tatas issued shares on 26th August 1907, for the first time in the financial history of the country, the Indian people - the masses, the affluent and the common people -joined hands to put up the first truly Indian enterprise. The Tata family contributed the remaining 11% shares of the Tata Iron and Steel Company Limited. The Steel Company obtained its first colliery in 1910, adding six more in course of time. Several mines were spread over the states of Bihar, Orissa and Karnataka. The Tatas soon became the first to own a fully mechanised iron ore mine in India at Noamundi. The Coal Beneficiation Plant at West Bokaro undertook beneficiation of low-grade coal, thus helping in the conservation of the fast dwindling resources of high quality coal. The collieries, the mines and the quarries together furnish the bulk of the raw material requirements of the plant. The last decade has been marked by Tata Steels prominent role in the overall development of the country, even during phases of economic turbulence and its decisive foray into more and more global territory. Intense strategic thinking about future expansions, plans for organic growth and initiation of new projects are a few highlights in Tata Steels expanding and more penetrative roles in the larger perspective. The acquisition of NatSteel in 2004 was Tata Steels first overseas acquisition and the series of joint ventures and mergers that followed found a peak when the acquisition of Corus, happened in April 2007. But in every positive step that the Company has taken towards growth and expansion, involving diverse cultures and geographies, Tata Steel has never lost sight of its great heritage of social and community responsibility. The story of Tatas achievements is a collective effort of people who sank differences of caste, creed, race and status to strive for a common goal- excellence. They offered their best as an expression of a sense of belonging, a sense of commitment to the family of which they were a part - the Tatas.

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Demand for TISCO.

Recognising the need for growth as the world recovers from the financial crisis, the Tata Steel Group has put into action initiatives that will ensure its growth is sustainable. These initiatives span the entire supply chain, from raw materials to logistics and value-added manufacturing. The Indian operations of Tata Steel are among the most cost competitive in the world, so expanding the capacity of the Jamshedpur plant in Jharkhand is naturally one of the Groups key strategies. Tata Steel proposes to expand the Jamshedpur works capacity to 9.7 million tonnes per annum (mtpa) of crude steel by 2011-12. The expansion will allow the Company to utilise its existing resources more efficiently, whether they be manpower, utilities or the Companys captive mines. Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Global Demand (in Mn. Tonnes) Domestic Demand (in Mn. Tonnes) Price (in Rs/Ton) 38.6 13.0 24000 42.3 16.0 33500 44.5 21.8 30000 49.5 28.7 29080 53.1 34.2 27750 57.8 36.3 25040 62.4 41.5 25350

Global Demand Curve of Tisco

40000 35000 30000 25000 20000 15000 10000 5000 0 38.6 42.3 44.5 49.5
Quantity

Price

Demand

53.1

57.8

62.4

Domestic Demand Curve of Tisco

40000 35000 30000 25000 20000 15000 10000 5000 0 13 16 21.8 28.7
Quantity

Price

Demand

34.2

36.3

41.5

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Supply for TISCO

The Tata Steel Group supplies all major global vehicle manufacturers. In addition to supplying a wide range of products, it also delivers services including involvement at the pre-design phase in order to optimise production performance at its customers factories. Tata Steel Europe supplies high integrity steels to major global commercial and defence aerospace programmes. These range from high strength, high integrity structural steels to high temperature alloy and stainless steels. The Company is involved throughout the supply chain, from materials selection and processing to the provision of expertise during development of engineering processes. Tata Steel delivers a multi-product solution to the global materials handling sector. It manages the complexity of products and services it supplies via multiple supply chains, through an extensive global network.
Year Global Supply (in Mn. Tonnes) 2003-04 33.0 2004-05 36.0 2005-06 41.0 2006-07 46.78 2007-08 50.1 2008-09 55.1 2009-10 59.8 Domestic Supply (in Mn. Tonnes) 12.0 15.1 20.1 26.9 31.3 35.2 40.09

Price (in Rs/Ton) 24000 33500 30000 29080 27750 25040 25350

Global Supply Curve of Tisco

40000 30000
Price

20000 10000 0 33 36 41 46.78

Quantity

Supply

50.1

55.1

59.8

Domestic Supply Curve of Tisco

40000 30000
Price

20000 10000 0 12 15.1 20.1 26.9

Quantity

Supply

31.3

35.2

40.1

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Shift in demand Curve

A shift in demand, either leftward or rightward, that occurs only when one of the five determinants of demand changes. Where determinants are variables that change the quantity demanded at each price and that determines where the demand curve is located. Like as Consumer Income, relative price, taste of consumer, expected price, no. of consumers, or other factors determining the demands of the good. A change in demand occurs when one or more of the determinants of demand change. Like in the Steel Industry various factors influence the demand of the steel. Such as the increase in demand or prices of other sectors dependent on the steel industry for raw materials and the overall economic growth and situations. In the following graph Demand is the initial demand supply. Which is influenced by the other sectors dependent on the steel industry as for raw materials. Demand 1 is the increase in Demand due to growth in construction sector due to which due to which demand for steel bars and sheets increased forming a new demand curve rightwards to the initial demand curve. Demand 2 is the decrease in Demand due to decrease in sales of the Automobiles decreased the decrease in production of automobiles causing decrease in demand for steel sheets and rigid steel forming a new demand curve leftwards to the initial demand curve.
Demand Shift
70 60 50
Price

40 30 20 10 0 24000 33500 30000 29080

Quantity

Demand Demand1 Demand2

27750

25040

25350

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Shift in Supply Curve

A shift in supply, either leftward or rightward, that occurs only when one of the five determinants of supply changes. Where determinants are variables that change the quantity supplied at each price and that determines where the supply curve is located. Like as price of the good, price of inputs, price of goods related in production, available technology, expected price, or no. of firms, or other factors determining the supply of the good. A change in supply occurs when one or more of the determinants of supply change. Like in the Steel Industry various factors influence the supply of the steel. Such as the increase in supply or prices of other sectors dependent on the steel industry for raw materials and the overall economic growth and situations. In the following graph Supply is the initial supply curve. Which is influenced by the other sectors over which steel industry is dependent for raw materials. Supply 1 is the decrease in Supply due to increase in crude oil price in international market, forming a new Supply curve leftwards to the initial Supply curve. Supply 2 is the increase in Supply due to decrease in Iron ore prices, forming a new supply curve rightwards to the initial supply curve.
Supply Shift
70 60 50
Price

40 30 20 10 0 24000 33500 30000 29080

Quantity

Supply Supply1 Supply2

27750

25040

25350

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Elasticity of Demand of Steel

Elasticity is the reaction of the customer towards the change in price. It is the change in Quantity demanded by change in price. Elasticity of steel is low, i.e.; they are inelastic goods. In the steel industry price changes day by day. In respect of the changes to the prices customers doesnt react that drastically. So, as demand doesnt changes that much in relation to the prices. So; it is inelastic in nature. Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Demand (in Mn. Tonnes) 34.444 36.037 40.471 43.063 45.387 50.257 58.450 Price (in Rs./Ton) 24000 33500 30000 29080 27750 25040 25350

Demand Curve
40000 35000 30000 25000 20000 15000 10000 5000 0 34.4 36 40.5 43.1 Quantity 45.4 50.2 58.4

Price

Demand

Price (in Rs./Ton) 24000 33500 30000 29080 27750 25040 25350

Demand (in Mn. Tonnes) 34.444 36.037 40.471 43.063 45.387 50.257 58.450

Elasticity 0.13714 -1.0514 -1.992 -1.12 -0.9918 12.249

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Elasticity of Supply of Steel

Elasticity is the reaction of the producers towards the change in price. It is the change in Quantity supplied by change in price. Elasticity of steel is low, i.e.; they are inelastic goods. In the steel industry price changes day by day. In respect of the changes to the prices customers doesnt react that drastically. So, as supply doesnt changes that much in relation to the prices. So; it is inelastic in nature.
Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Supply (in Mn. Tonnes) 32.81 34.70 38.96 41.41 43.28 46.5 54.35 Growth (in %) 5.76 12.23 6.29 4.51 7.42 16.91 Price (in Rs/Ton) 24000 33500 30000 29080 27750 25040 25350

Supply Curve
40000 35000 30000 25000
Price

20000 15000 10000 5000 0 32.8 34.7 38.9 41.4

Quantity

Supply

43.3

46.5

54.3

Price (in Rs./Ton) 24000 33500 30000 29080 27750 25040 25350

Demand (in Mn. Tonnes) 34.444 36.037 40.471 43.063 45.387 50.257 58.450

Elasticity -0.1694 -1.0491 -1.9576 -0.9434 -0.6986 12.6524 14 | P a g e

Price shift and change in equilibrium point

In the international market steel of the price changes day to day and accordingly the demand also shows the changes with the supply and price with other market factors. Its also quite unresponsive in regard to the change in demand and supply for the international and national context of the market in steel industry. According to the previous data collected in context of Indian and in TISCO prospective it seems quite vague to determine the equilibrium with all the different market factors under consideration.

Price shift in equilibrium Curve

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Conclusion
Significance & Forcasting
The Arcelor Mittal, which is the largest steelmaker in the world, has plans of establishing two Greenfield steel projects with capacity of 12 million tons annually, in India Acerinox SA, one of the important stainless steel manufacturers in collaboration with Nisshin Steel, Japan is setting up a steel plant in India The Tata Steel ranks 5th in the world steel production and the company have plans of expanding its capacity by the year 2015 SAIL, India's biggest producer of steel has plans of increasing the production to 24.98 million tons annually Sinosteel Corp, China are planning to invest US$ 4 billion to set up a 5 million tons capacity Greenfield steel plant The acquisition of the Corus, the Anglo-Dutch steel manufacturer by the Tata Steel The Algoma Steel, Canada was acquired by Essar Global for US$ 1.63 billion

Growth
The International Iron and Steel Institute (IISI) has fore casted that the steel demand will go of from 1.19 billion ton to 1.4 billion ton in 2012. And this will further increase in a higher rate up to 2015. In India the growth will be more prominent because of the growth in Real estate, Aviation, Manufacturing, Automobile sectors.

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Hindrances
Energy supply : - Power shortages hamper production at many locations. Since 2001 the Indian government has been endeavoring to ensure that power is available nationwide by 2014. Problems procuring raw material inputs :insufficient raw materials and input leading to increase in import costs. Inefficient transport system :- termed as insufficient and inefficient. It lacks quality .

Analysis
THE outlook for the global steel industry in 2010 is stable, supported by strong demand from emerging economies amid further consolidation among players worldwide. We can even see several large acquisitions of global steel companies like Corus by Indian steel giants. Indias lower wages and favorable energy prices will continue to promise substantial cost advantages compared to production facilities in(Western) Europe or the US. The growth prospects of the client industries are also very good. The deployment of modern production systems is increasingly enabling India to improve the quality of its steel products and thus to enhance its export prospects.

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